The US Federal Reserve, in conjunction with the Federal Open Market Committee (FOMC), has announced a 25 basis point increase in the federal funds rate, marking the tenth straight occasion in which the Fed has raised interest rates.
At 2:00 p.m. Eastern Time, the central bank raised the benchmark interest rate, citing “modest” economic growth in the first quarter. While unemployment is low, the FOMC announcement noted that inflation remains elevated. The committee emphasized that the US banking system is “sound and resilient” despite issues in the industry.
Targeting a 2% inflation rate
The FOMC press release notes that the committee prioritizes bringing inflation rates down to the 2% range. In support of these goals, the target range for the federal funds rate was increased to 5 to 5-1/4 percent.
The announcement caused all major US benchmark stock indexes to jump, alongside a modest spike in precious metals and crypto markets. While some market observers expect the Fed to pivot and cut the benchmark bank rate, the FOMC said the committee still anticipates some “additional policy firming may be appropriate to return inflation to 2% over time.”
The FOMC message does not explain whether or not the Fed will keep the rate the same at the meeting in June.
During the press conference, Fed Chairman Jerome Powell addressed the US debt limit and hoped a resolution would be reached. Consistent with his previous statements, the Fed believes that failure to raise the debt limit could lead to financial disruption. As for the Fed’s next move, Powell stated that the central bank is “prepared to do more if greater monetary policy is warranted.” Investors will be keeping a close eye on the Fed’s future policy decisions.